Group Tied to Obama Urges Tax Increase

By

John D. McKinnon

Updated Sept. 30, 2009 12:01 a.m. ET

A liberal think tank with close ties to President Barack Obama says the administration and Congress should consider raising taxes on Americans to help close federal budget deficits, an opening salvo in what is likely to be a protracted debate on tax policy.

In a draft report, the Center for American Progress says the size of projected budget gaps requires considering options including tax increases as well as curbs on annual spending and entitlement programs supported by Democrats.

Such ideas could pose problems for Mr. Obama, who pledged during the campaign to not increase taxes on families making less than $250,000. The report, which will be released on Wednesday, said the administration can't rely on taxing richer Americans and companies to reduce the deficit to sustainable levels by 2014 because those groups would see 40% tax increases.

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"In all seriousness, responsible people know that additional revenue has to be part of the mix even if they believe in lower taxes in general," the report concludes.

The center's president and chief executive, John Podesta, who is an Obama adviser, said the administration should consider a tax on consumption, such as a value-added tax system similar to that in use in the European Union. Mr. Podesta suggested that its impact should be limited to protect lower-income people, who otherwise might be hit particularly hard.

"As progressives we need to debate the policy merits and likelihood of enacting a range of options -- including designing a small and more progressive value-added tax, changes to the corporate tax code, and taxing upper income earners beyond reversing the Bush tax cuts," Mr. Podesta said in a statement Tuesday.

White House economic adviser Larry Summers and Treasury Secretary Timothy Geithner refused to rule out middle-class tax increases during Sunday talk-show appearances over the summer. "We have to bring these deficits down very dramatically," Mr. Geithner said on ABC's "This Week." "And that's going to require some very hard choices." But White House press secretary Robert Gibbs disavowed the comments.

The center's report marks a sign of potential division between the administration and its supporters. Health-care legislation, Afghanistan troop levels and terrorist detainee policy are among other areas where the administration has sometimes found itself at odds with components of its liberal base.

Another liberal coalition, the labor-allied Campaign for America's Future, is preparing a push for more stimulus spending later this month, another idea that clashes with the administration's thinking.

A conservative antitax group, Americans for Tax Reform, opposed Mr. Podesta's VAT idea, saying a value-added tax would apply to "most everything consumed by everybody." The White House didn't respond to requests for comment about the VAT proposal.

As the government looks for ways to reduce its big long-term deficits, a debate over taxes will likely be protracted. The tax debate is expected to heat up later this year, when Congress takes up changes to the estate tax, as well as some corporate research breaks and energy-related provisions.

Republicans and some Democrats also have been sounding the alarm on spending, and Republicans are considering attempts to cancel or redirect some funds from the February stimulus bill if they aren't spent by the end of 2010, said Sen. Judd Gregg of New Hampshire, the senior Republican on the Senate Budget Committee.

Congressional Democrats also appear increasingly concerned about the government's fiscal situation. House Democrats are considering including criteria for reducing long-term deficits in next year's budget resolution, Rep. John Spratt (D., S.C.), the chairman of the House Budget Committee, said in a recent interview.

For the moment, outspoken progressives say they are sticking with Mr. Obama. "In areas where the president may be going down the wrong road -- like in Afghanistan -- I'm going to be vocal in my opposition," said Rep. Jim McGovern (D., Mass.), who has led a House effort to dissuade the administration from sending more troops to Afghanistan.

Still, "at the end of the day, anybody who tells you they're expecting perfection out of this administration from the progressive perspective is not living in the real world."

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